Understand the confusion. The doc pages are often unclear on these important application properties/configurations.

There are two contexts where you can specify a generate id's action.

1. One is with respect to your production (TARGET dataset, usually BMC.ASSET). This setting is intended to handle the situation where the target dataset may contain records with a zero recon id. Obviously they won't be considered in any identification activities while they have no recon id, so you have an option to go through and auto-identify any such records BEFORE the full ID activity begins, to give you the best shot at a useful ID run.This is set on the main ID rule page in conjunction with the target dataset (what am I identifying against?).

2. Second is with respect to your SOURCE dataset (the one being ID'd). This is basically saying, if you can't find a match in the target, is it ok to auto generate the recon. id for the record. This will mean that when the merge job follows, it will CREATE this record from the source dataset in the target dataset (since it's a new recon. id NOT found in the target). If you say No to this option, the record remains unidentified and therefore still not available in the PROD dataset. In setting this to Yes, you are, in effect, saying that the source dataset record can safely be assumed as New, and that it's OK to create it in the target dataset. This is set in the detail ID rule configuration against each (source) dataset participating in the activity.

1) In case there is a CI in Source Dataset which went through all the ID Rules and was not found/identified, the CI will be created in BMC Asset and the ReconID will be created/assigned to both of them.

2) In case the CI in Source Dataset was found in BMC Asset according to some of the ID Rules, the CI will be identified and RecondID will be set from the BMC Asset CI.

3) In case the CI in Source Dataset will be found in BMC Asset more then once (according to some ID Rule) there will be a error and the CI in Source Dataset will be skipped - left with 0 in reconID.

Is that what you are explaining in point 2 some workaround for my point 3 ? As otherwise I don't see any usage of the parameter you described in 2).